In a landmark move, the Finance Minister has announced a significant consolidation plan for Public Sector Banks (PSBs). Under the new arrangement, ten banks will be merged, resulting in the formation of four large entities. This development comes as part of a wider effort to streamline and strengthen banking institutions in India.
Details of the Mega Merger
The banks involved in this merger are:
| Sr. No. | Amalgamated Banks | Anchor Banks |
| 1 | Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), and United Bank of India | PNB |
| 2 | Canara Bank and Syndicate Bank | Canara Bank |
| 3 | Union Bank of India, Andhra Bank, and Corporation Bank | Union Bank of India |
| 4 | Indian Bank and Allahabad Bank | Indian Bank |
Following this merger, the total number of PSBs will reduce from 27 in 2017, to just 12. Previous mergers have included the integration of Vijaya Bank and Dena Bank with Bank of Baroda in 2019, and the absorption of five associate banks and the Bharatiya Mahila Bank by the State Bank of India in 2017.
Current Scenario Post-Merger
| Sr. No. | Bank Name | PSB Rank by size |
|---|---|---|
| 1 | State Bank of India | Largest |
| 2 | Punjab National Bank | 2nd largest |
| 3 | Bank of Baroda | 3rd largest |
| 4 | Canara Bank | 4th largest |
| 5 | Union Bank of India | 5th largest |
Several Benefits Expected Post-Merger
This merger has been strategized and executed with the idea of yielding a robust, efficient, and globally competitive banking system in India.
The consolidation is expected to not only strengthen the presence of PSBs at national and international levels but also instill better governance. Through the enhanced operational efficiency in the merged entities, lending costs are likely to be reduced.
Technological synergy is another anticipated benefit from this consolidation. All banks involved in the merger will share a common Core Banking Solutions (CBS) platform, which can provide customer-centric services on a 24×7 basis from a single location.
Larger banks tend to be more self-sufficient, showing a stronger ability to raise resources from the market. The consolidation will enhance monitoring, capital allocation, and performance milestone tracking for the government.
Challenges Foreseen in the Merger
Whilst consolidating brings numerous benefits, it also comes with certain challenges. The decision-making process may slow down due to the enormity and complexity of the integration process. Additionally, a geographical synergy between the merging banks is, in some cases, missing as most serve specific regions of the country only. There’s also concern that the weaknesses and capital constraints of smaller banks may be passed onto the merged entity, potentially stalling recovery efforts.
